Bill targets debt of low-incomeThe government has decided to ease the burden on low-income households that are struggling to pay back their debt. In fact, it’s considering writing off as much as 90 percent of their principal.
Additionally, financial companies that have commissioned the collection of debts to a collection agency that committed illegal acts will be penalized.
“So far there hasn’t been enough support for lower income people, who have been faithfully paying off their debts, accordingly to their debt adjustment system and as a result there were cases where they have given up in the middle,” Yim Jong-ryong, Financial Services Commission Chairman said during a meeting on financial consumer issues in Seoul on Monday. “Also excessive debt collections have continuously been raised.
The government will improve the debt adjustment system by providing support for those who are incapable in paying their debts as well as expand the incentives to those who have been faithful in paying up their borrowing.”
Currently, low-income debtors accepted to the National Happiness Fund get 30 percent to as much as 60 percent of their debt written off. The fund founded in 2013 and managed by the Korea Asset Management Corporation was created to ease the burden of debt. The FSC plans to raise this limit to 90 percent. So far only those who are 70 or older, have serious disabilities and depend on government subsidies for basic living were allowed to have 90 percent of their debt written off.
A debt restructuring committee will be looking into various data including the applicant’s income to decide whether to write off 90 percent of the debt principal.
The FSC said the first group that will be eligible to apply for the debt write-off with the higher ceiling will be those who have been in arrears for a minimum of 15 years. The government will then lower the bar gradually to allow more to apply for the debt write-off program.
In addition, the government plans to expand its support to those who have faithfully been paying off their debt after being accepted into the debt-restructuring program.
One plan is to reduce the mandatory months of debt payments from the current 12 months to nine months in order to be accepted as faithful debt payers.
Those who have succeeded in paying off 60 percent of their loans will be eligible to subscribe to the so-called Miso Dream Deposit program, with annual interest rates of 8 percent.
This financial product, which launched in September 2015, targets low-income people whose annual income is less than 120 percent of the basic living subsidies that the government provides to the poorest households. This financial product is only offered to those who have paid their debt faithfully.
Other expanded benefits include increasing the limit on credit cards provided to low-income households from the current 500,000 won per month to 1 million won. The government will also write off the remaining debt of faithful debtors who have fulfilled 75 percent or more on their debts in cases where they are in an accident or suffer from critical illness.
The reform plan is expected to be implemented as early as the fourth quarter of this year or as late as the first quarter of next year and is expected to ease the financial burden of 233,000 people in debt.
The FSC also introduced an improved plan for debt collections. Not only will debt collectors be held accountable for illegal debt collections but the financial institutions that commissioned agencies will be penalized as well. The reform bill to improve debt collection practices is targeted for the first half of next year.
BY LEE HO-JEONG [firstname.lastname@example.org]
with the Korea JoongAng Daily
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